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CME: Herd Expansion Possible If Pastures Improves

08 February 2013

US - The first Seasonal Trader Report will be available at The Daily Livestock Report website tomorrow! “Supporters” who have contributed $149 or more will be able to simply log in to their account, click on Quarterly Report and download the Adobe .pdf file, write Steve Meyer and Len Steiner.

One factor that should have been included in our discussion of U.S. sheep numbers (we actually thought of it but forgot to include it — a “senior” moment, we fear) was predator control regulation changes. The predator poison “1080” was banned in 1972.

Sheep numbers had been falling prior to that time but the rate of decline picked up noticeably in the five years following the ban as predation losses added to costs.

Add these costs to the higher costs inherent with a small-flock structure (not at all unlike our “small cow herd” beef industry structure) and you get high prices which reduced the quantities demanded by consumers, attracted imports and further reduced domestic numbers.

There is a lesson for the beef industry: Policy decisions MATTER. The 1080 decision was a profound one for the sheep industry just as decisions on public lands usage, water rights, food safety, antibiotics and others will be important for the beef industry.

It is important to remember that there are, in fact, two beef industries in the world. One is the grain fed steak business which the U.S. and Canada still dominate even though Australia has gained a significant position in the post-BSE era.

We think the U.S. will remain a dominant force in that segment. But it is estimated that more than 50 per cent of our beef consumption is ground product which can be sourced from many places, most of which would have a cost advantage on the U.S. for that type of generally grass-fed product.

Beef cows will not disappear from U.S. pastures and ranges and we believe that the herd will indeed turn to expansion if pasture conditions improve and grain crops are good this year. But 100 million total cattle and 32 to 35 million beef cows are both almost certainly things of the past.

A question that arose in our discussion of cattle numbers is just how large a role cattle imports may be playing in this longterm decline in U.S. cattle numbers.

The chart at upper right presents several pieces of information in an effort to at least see the history of these important numbers. Included here are monthly total U.S. steer and heifer slaughter separated as to source: U.S. calves, feeders imported from Canada and Mexico and fed cattle imported from Canada directly for slaughter. Feeder imports are lagged six months.

We know that is not absolutely accurate on timing but it is reasonable. Slaughter data are read off the left axis. We have also included total cattle inventory and calf crop on the right axis to provide some idea of their changes over time relative to slaughter.

We think a few conclusions can be drawn:

  • There is no upward trend in total cattle imports. There is, in fact, a slight downtrend in numbers since 1992 when data on Canadian cattle were divided between feeders and feds. The downtrend is a very slow .05 per cent per year but is statistically significant at the .95 level owing largely to having 250 observations in the data set.
  • The number of cattle coming from Canada has declined significantly since 2008. 2012 imports of cattle from Canada — through November — amounted to 1.286 million head. That compares to 2.269 million head during the first 11 months of 2008, a reduction of 43 per cent. The decline was 50 per cent for Canadian feeders and 32 per cent for Canadian fed cattle. The reasons for the declines are the increase in the value of the Canadian dollar (which makes selling Canadian in U.S. markets less attractive for Canadian sellers) and mandatory country-of-origin labeling (MCOOL) which added costs to feeding, processing and selling product from Canada-origin animals.
  • The decline in imports from Canada has been almost fully compensated by more cattle from Mexico. Mexican imports in Jan-Nov ‘12 were up 128 per cent from 2008 and 24 per cent from 2010. A major reason is that the 2011 drought did not stop at the Rio Grande. In addition, MCOOL does not appear to have had as much impact because southern feeders and packers have been able to better segregate the cattle and product and labels including Mexico are not a big problem in markets with high proportions of Hispanic buyers.

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